On Aurora’s eastern edge, where the bustle of metro Denver fades to farms, the first building of what will become the state’s largest data center stands behind a wrought-iron fence. In another section of the 65-acre campus, front-end loaders are at work preparing for the foundation of another building.
Seventeen miles west, in a dusty industrial nook of northern Denver, workers on a recent day scattered across a huge pit dug into the earth to lay the foundation for that city’s newest data center.
The two construction sites offer a glimpse into what a predicted boom in Colorado’s data center industry may look like as the industry expands exponentially nationwide to meet the needs of Americans’ increasingly online lives — and to provide the computing power demanded by artificial intelligence. The potential growth — and repeated proposals for state incentives to expedite that development — are creating concerns that the centers’ required power and cooling needs could keep Colorado from meeting its climate goals and drain already-stretched water resources.
“The speed at which the demand is increasing is scary,” said Joshua Darrin, the chief operating officer of Data Canopy, which operates 16 data centers across the country, including one in Denver.
Already, an “absolute arms race” among data center developers has prompted the state’s largest electricity provider to stop offering lower rates for the facilities, according to Xcel Energy executives. If all of the data centers’ requests to the utility for power were to come to fruition, Xcel would need to double its current generating power.
When completed, the Aurora data center will be a 160 megawatt hyperscale facility that, at max capacity, could consume as much power as 176,000 homes. The northern Denver data center, once completed in the Elyria-Swansea neighborhood, could use a maximum of 805,000 gallons of water a day for cooling — the same as 16,100 Denverites’ average daily indoor water use.
Regulators, environmental advocates and data center representatives all say Colorado faces a critical moment: Can the state balance the desire from some government leaders for the economic development brought by data centers with Colorado’s climate goals and water realities? And can it do that while protecting electric customers from bearing the costs of the burgeoning industry?
“What we’re seeing in Colorado is (that) we’re really trying to be thoughtful and get ahead of this — and make sure we’re doing this in the right way,” said Rebecca White, the director of the state’s Public Utilities Commission.
Dozens of smaller data centers already operate across the Front Range. But the two new, much larger data centers under construction will require more resources, reflecting the needs of a pivoting industry that needs more power.
“If a state doesn’t enact policies to deliberately mitigate environmental impacts, you can have really serious environmental repercussions from data centers,” said Matt Gerhart, a senior attorney for the Sierra Club focused on the clean energy transition.
A bill that would have granted state tax incentives to data centers died in the statehouse after its first committee hearing this spring, but lawmakers and those watching the industry said the topic will resurface in coming years.
“I expect that we’ll see something similar next year,” said Justin Brant, the utility program director at the Southwest Energy Efficiency Project, which advocates for greater energy efficiency and clean transportation across the Southwest. “If the projections are to be believed, a lot of new data centers are coming to Colorado in the next five years, and I think it’s important to think about how we intentionally bring that new electric load to the state.”
Front Range could be hot new market
In a Centennial office park last month, rows of servers sat in a nondescript, windowless building that neighbors a volleyball training facility and a pilot school. The whirring and clicking of fans dominated the clinically bright room as the building’s cooling system worked to whisk the palpable heat away from the servers.
Nine 30-ton air conditioning units were ready to go if needed, but only two were needed for Expedient’s data center that day.
The 2-megawatt facility is typical of Denver’s current industry: a relatively small center that provides cloud services and leases out space for other companies to securely store their servers.
For decades, data centers were seen simply as infrastructure or a commodity — stable, almost boring, said Brian LaComb, the company’s area vice president.
“But we’ve seen an exponential growth in the past five years,” said LaComb, who has worked in the industry for more than 15 years.
Data center servers function as the main infrastructure for the digital world. They crunch financial data, store patients’ health information, process online shopping, register sports betting and — increasingly — make possible the heavy data demands of AI.
“Our entire digital life is housed in data centers somewhere — whether it’s TikTok, Facebook, Instagram, email, Google Maps, all of AI,” said Darrin of DataCanopy. “Everything that we do in our digital lives is being stored in data centers somewhere.”
The Denver Post identified 28 companies operating 50 data centers across 38 campuses in Colorado — all located on the Front Range. Most of those data centers are relatively small facilities whose maximum power needs amount to less than 20 megawatts.
Hyperscale facilities, like the 65-acre Aurora project, are needed to meet the computing demands of AI. A February analysis by Goldman Sachs found that the global power demands by data centers will increase 55% by 2027, fueled primarily by an increase in AI workloads. The international investment bank and finance firm estimated that AI currently uses 13% of global data center power, a share that will more than double to 27% in the next two years.
QTS — a global data center company with 40 facilities across the U.S., the United Kingdom and the Netherlands — declined an interview about its Aurora hyperscale facility near the intersection of Interstate 70 and E-470 unless The Post provided interview questions ahead of time. Company spokeswoman Karen Cohen instead sent a statement that highlighted the company’s generation of millions of dollars in tax revenue, its creation of construction jobs and its commitment to environmental stewardship.
Increasingly, data center companies are looking favorably at Colorado, according to real estate companies and industry groups. A report last year by a real estate firm found that Denver and Colorado Springs had potential to see a significant increase in the number of data centers.
“The industry is chasing cheap power; they’re looking for cheap power and land,” Darrin said.
Compared to states like Virginia and Georgia, Colorado has a relatively small market and has not yet seen the large-scale developments of other states. But it has many qualities that companies are looking for, said Dan Diorio, the senior director of state policy for the Data Center Coalition, the membership association for the industry.
“Colorado has a lot of things working for it right now: the infrastructure, the workforce, access to energy and access to land,” Diorio said.
Drastic shifts in market, power demand
Colorado’s largest utility fields requests from data centers almost weekly, Xcel Energy executives have told the Public Utilities Commission.
The data center market has shifted drastically in the last two years, and after years of relatively flat growth, the industry is the main driver of increased demand, said Amanda Rome, Xcel’s executive vice president and group president for utilities. While smaller data centers remain in the mix, the utility is hearing from more potential hyperscale customers.
Xcel estimates that new requests from data centers and manufacturers — called large-load customers — could generate the need for 1,923 megawatts of power by 2031, according to its filings with the PUC. That’s enough electricity to power 2.1 million homes and would be a 31% increase to the current power supply.
“It’s going to require all the generation we have,” Rome said.
That estimate is a small fraction of the total 6,181 megawatts of power requested by large-load customers to come online by 2031. But not all of those requests will become reality, so Xcel used a probability formula to estimate how much demand will likely materialize, a projection the utility called conservative.
If all of the 6,181 megawatts were to come to fruition, it would nearly double the utility’s current power needs.
About 70% of new large-load customers seeking power from the utility are data centers, most of which are looking to develop in Aurora and Denver, according to Xcel documents provided to the PUC.
The utility crunched those numbers in the spring of 2024. If it were to do the analysis again, the expected increased load would be closer to the high end it calculated a year ago, Rome said.
While Xcel has previously negotiated lower electricity rates with data center customers — like QTS — it is far less likely to do so now in the face of so much demand, Rome said. The AI boom sparked an “absolute arms race” between hyperscale facilities looking to get power as quickly as possible, she said.
“It’s just not where the market is today, versus where it was two (or) five years ago,” she said.
The increase in data center interest has prompted the PUC — the state’s utilities regulator — to contemplate a new, streamlined regulatory process to evaluate data centers. The commission does not have the perfect process to review new data centers’ power needs in the way it needs to, PUC director White said. The development of data centers moves quickly, she said, while the commission’s processes can take years.
“Under current law, utilities have to deliver two things: reliable and safe power for their customers, while maintaining progress toward the climate requirements and getting to the 85% reduction in greenhouse gas emissions” by 2030, White said. “We’re holding them to both those standards.”
Impacts on clean-energy goals, water supplies
Colorado lawmakers have set several goals to reduce the amount of climate-changing greenhouse gas emissions in the state. By 2050, the state aims to reduce greenhouse gas emissions to net zero, which means reducing emissions to a point where the remaining amount can be offset by carbon removal efforts like carbon capture and tree planting.
The state is making progress, though it is projected to fall short of achieving interim benchmark goals.
Environmental advocates worry that an influx of data centers will necessitate the generation of more power through carbon-emitting plants, or require a delay in the planned retirements of coal power plants.
Sierra Club Colorado is not opposed to data centers, but it’s “skeptical and concerned” about their potential environmental impacts, said Garrett Royer, the group’s senior government affairs and political advocate.
“We know we can’t draw a line in the sand about data centers and just say they’re bad. But this needs to be done in ways that don’t harm communities,” he said.
Data centers could help the transition toward clean energy, such as by using excess wind power at night or providing investments for new green energy sources like geothermal, White said.
But in other states, increased demand from data centers has also extended the operation of coal power plants and spurred further investment in natural gas, she said.
“We need to make sure we get this right,” White said. “I generally have a lot of optimism that we’re going to get this right. We’ll figure this out and do it in a way that makes sense for Colorado.”
In addition to power, some data centers use massive amounts of water for cooling. Environmental groups say those demands must be considered in a state where water is already scarce and climate change is expected to shrink supplies.
“The water impact is really, really important, especially for Colorado,” Royer said. “We are very familiar with droughts and water usage and know that is one of our most important and valuable resources.”
The amount of water used by a data center varies widely depending on its location, its size, its computing density and the cooling technology installed, according to the Data Center Coalition. Air cooling uses less water but more power, while liquid cooling uses less power but more water.
A report compiled for the Virginia General Assembly found that “most data centers use about the same amount of water or less as an average large office building, although a few require substantially more, and some require less than a typical household.”
Records obtained by The Post through a records request to Denver Water and Aurora Water show that data centers in Denver and Aurora use a wide range of water every year. Average annual water use among the 14 facilities ranged from 1 acre-foot to 40 acre-feet per year. An acre-foot is enough water for two families’ annual water use.
One of the larger facilities under construction will be much thirstier.
CoreSite’s data center in Denver’s Elyria-Swansea could use up to 805,000 gallons of water a day, company officials have said, though the average daily use would be less. About 80% of the water that will go through the system will be lost to evaporation. What remains can be chemically treated and reused.
The QTS hyperscale facility in Aurora, however, will use “water-free” liquid cooling, according to the company.
In a 2023 interview with DataCentre Magazine, the company’s vice president of energy and sustainability, Travis Wright, said the cooling system “uses a low-pressure, pumped, refrigerant system that uses outside air economisation to deliver world-class energy efficiency metrics, as well as using minimal water.”
Demand for water for municipal and industrial uses across the state is expected to outpace supply by 2050, according to the Colorado Water Plan. In dry years, the supply gap could range from 230,000 acre-feet to 740,000 acre-feet.
Proposed data centers must be assessed through the state’s water adequacy laws and local water policies, said Katie Weeman, spokeswoman for the Colorado Water Conservation Board. State law requires that local governments deny an application for development unless the company has demonstrated that there is enough water supply.
Any future laws or state policies about data centers must further consider their water usage, said Royer, from Sierra Club Colorado.
“We live in a state that has a really fraught relationship with water, which is a resource that is absolutely something to protect,” he said.
Are tax breaks needed?
Aside from their resource needs, Colorado officials also are eyeing the positive economic impacts of data center development.
People considering the future of Colorado’s data center industry fall into two camps: Those who believe tax incentives are necessary to lure the companies here and those who believe the companies are coming, incentives or not.
“There’s no boom without an incentive structure — we’re just not competitive on the cost side as to what other states are,” said Sen. Nick Hinrichsen, a Pueblo Democrat who sponsored this session’s tax incentive bill. “Companies have been pretty clear that right now we’re not a serious option that’s being considered because of that hurdle.”
Hinrichsen’s bill, Senate Bill 280, passed out of its first committee but did not make it further. The bill would have exempted new, large-scale data centers from state sales and use taxes for 20 years if they met certain benchmarks for investment and water and energy efficiency.
Hinrichsen said he “absolutely” thinks similar legislation will come in next year’s session.
“The success of this year’s bill is that we were able to get some serious conversations going with this,” he said. “The issue’s not going to go away.”
Environmental groups, consumer protection advocates and other lawmakers questioned the need to give up tax dollars when demand seemed high and large projects like QTS’s were already underway. For the Denver project, CoreSite initially pursued local tax breaks but eventually decided to build its 40-megawatt facility without any tax incentives after facing pushback from the City Council, based on the facility’s environmental and community impacts.
If the state were to grant tax breaks, advocacy groups said, the data center companies receiving the incentives would need to be held to sustainability standards, like mandating the use of renewable energy as well as setting water and energy efficiency standards.
“We’re not opposed to data centers but want to make sure that if we’re providing incentives to locate more data centers in Colorado, they’re tied to specific environmental safeguards and guardrails,” said Brant of the Southwest Energy Efficiency Project. “In general, these are highly profitable companies and they’re coming here regardless.”
Thirty-two states have implemented tax incentives to attract more data centers to their communities. Some of them are now reconsidering.
Since 2010, Virginia has exempted large data centers from its state sales and use tax. It’s now home to the largest data center market in the world. But in 2024, the state’s General Assembly ordered a review of the program that found most of the data centers’ positive economic impact occurred during construction.
While 1,500 people may be employed to build a center, the number of jobs winnows to the double digits once construction is complete. The centers can provide a source of local tax revenue — if local governments don’t grant huge tax breaks, the report found.
In 2025, Virginia lawmakers considered 30 bills that would change the incentive program, though most failed, according to Good Jobs First, a national policy think tank that investigates corporate tax subsidies.
Georgia lawmakers passed a bill last year to pause the state’s incentive program, but the governor vetoed it. Washington’s governor in February ordered a study of that state’s tax incentive program as well as the industry’s economic and environmental impacts.
“There’s an opportunity to construct sound policy around data centers that can be nation-leading,” Parks Barroso, Western Resource Advocates’ Colorado clean energy manager, said in an email. “This is an issue impacting so many states across the U.S. that many will look to Colorado if we properly balance the load growth demands of data centers with strong guardrails to keep us on target for a net-zero future.”
Amid the discussions of economic pros and cons and electric grid capacity, there is a larger picture and moral question being ignored, said Rachael Lehman, who followed SB-280 as the legislative affairs representative for Black Parents United Foundation, a Colorado nonprofit that advocates on a variety of issues in the state, including environmental justice.
Colorado should not forfeit taxpayers’ dollars to profitable companies looking to speed the growth of AI when the country has yet to establish guardrails around the use of the society-altering technology, she said. She worried that poor and non-white communities would bear more of the costs and fewer of the benefits of AI.
“Before we have a full-on explosion of AI in our day-to-day lives, we need to reckon with that first,” she said. “We’re literally putting the cart before the horse by building the data centers to run the AIs. There just is not enough conversation.”
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